AGRICULTURE: Behind the world's food shortage

Food riots in a number of developing countries have begun to refocus the attention of governments after decades of policy neglect. Patrick J. Byrne reports.

Worldwide, just over a billion people survive on US$1 a day, the line of absolute poverty, while a further 1.5 billion make do on US$1.00-1.50 a day.

Bob Zoellick, president of the World Bank, says that the world food crisis could wipe out all the gains the world's poorest billion people made from the past decade of economic growth.

World food stocks are depleted and production has not kept up with the rapidly rising demand from the burgeoning middle class of China and India, two countries which make up one-third of the world's population. Drought in Australia, the world's second biggest grain exporter, has affected supplies.

With supplies tight, some exporting countries have limited rice and grain exports so as to dampen domestic inflation. The effect is to cause food shortages and inflation in the importing countries. Financial market speculators are also spiking prices.

Malcolm Bartholemeus, an analyst at Callum Downs Commodity News, told the ABC Radio National's PM program (April 24), "A major reason [for the shortages] is that over the last 10 or 15 years it has been unprofitable to grow food. The world's farmers have been slowly going broke at the prices they've been receiving...

"The producers of commodities have reacted to the price signal that was being delivered to them" and not expanded production to meet demand.

Paying European farmers to stop producing has also limited farm output. Both the EU and US have been reducing the amount of land under production for decades.

This may now be changing. According to The Economist (April 19), wheat plantings are expanding in the US (4 per cent) and in the EU (13 per cent) this season.

The Economist argues that encouraging the world's 450 million small farmers in the developing world would be an ideal solution. It would reduce poverty and it should prove easier to substantially boost the low crop yields in developing nations than to marginally increase the already high yields of developed nations.

Slow progress

Currently, this is not happening fast enough because farmers in the developing nations cannot afford the current high fuel and fertiliser costs.

It also takes time for farmers to respond to increased food prices. It takes time to clear new land, and then to afford new seeds, machinery and other inputs.

Another factor restricting food production has been that in many developing nations, the size of farms has been shrinking, making it more difficult to afford inputs and of reaching a production scale needed to access supermarkets.

A related problem has been that most funding for agricultural research in developing nations has come from governments. This spending has been halved over the past quarter century and private sector investment has not bridged the gap.

Consequently, following the "green revolution" of the 1970s, when new seeds saw output multiply, yields of some crops have since declined substantially. New disease-resistant strains have not been developed. "Creating a new seed is a bit like designing a flu vaccine: you need to keep updating it, or pests and diseases will negate its effectiveness," notes The Economist.

Part of the solution demands a big increase in agricultural investment. Columbia University economist, Jeffrey Sachs, and the World Bank both argue that investment in agriculture yields the greatest returns for economic growth of any form of investment.

Many developing countries see up to half the food they produce go to waste because there is no way to get food from farms to markets. Josette Sheeran, executive director of the UN World Food Program, says, "These are things that can be solved... Then Africa needs a 'green revolution' like Asia had in the 1970s. In a way, the higher food prices may inspire more people to stay farming as they see that it's a good investment." (Foreign Policy, April 2008)

Malcolm Bartholemeus has suggested that, rather than sending food, Western nations should "give people in the developing countries the money to go and buy the grain. [That] will send a price signal within those developing countries for them to increase their own grain production."

The solution may also require regulation of Western financial speculators.

According to Der Spiegel magazine (April 23), the US Commodity Futures Trading Commission has been investigating the role of speculators taking advantage of short supplies to speculate heavily on the futures markets, driving up prices. Commodity prices spiked sharply since January, way beyond what the classical market demand and supply theory could explain.

Greg Warner, an analyst with AgResource in Chicago, is stunned by the unprecedented investment in food commodity futures, saying that he sees it as evidence of "capitalism... literally consuming itself" as greedy speculators gamble with the daily food supply of the world's poorest people.

- Patrick J. Byrne is national vice-president of the National Civic Council.